Imperial Candy Company

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IN 'IJIE MATTER OF l1\1PERIAL CANDY COMPANY C01U'L.\INT, FINDINGS, AND ORDER IN IU<;GAIW TO THM ALLEGED Violation OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT, 26, 1914 Docket 28JJ. Complaint, June 4, 1936-Decisio-n, July 9, 1937 Where a corporation engaged in manufacture and sale of so-called "draw" or "deal" assortuwnts of caudy, sale and distribution of which type c-andy by retailers by lot or chnnce has capacity and tendency to and does decrease sale of candy sold without any sales plan or device involving lottery or game of chauce, l. e., "straight" goods, and sale of Which type, providing, in connection with its sale to public, means or opportunity of obtaining a box of candy as a prize or becoming a winner by lot or ehance, teaches and encourages gambling and is in violation of various mnnlc!pal ordinances and regulations and State statutes and coustitutlom'l, an<.l provid.e>i retail merdulllts with mea,11s of violating the laws of the several States, and sale of which candy, so packed and assembled as to enable retail dealers, without alteration, addition, or rearrangement, to resell same to consuming public by lot or chance, · is contrary to public policy- IS 0 I ll, to wholesale uml retail dealers, certain assortmeuls of candy which Were so pn('kf'd ond af:Remblctl as to involve, or were designed tQ lnvot Ye, u:oe of a lottery t;ChPme when ;;uld !tnd distributed to consumers thereof, and one of which included, togcthei: with a punchboard, a number of boxes of assorted chocolate candies of a value of more than 1lve cents each, for sale to consuming public under a plan, and In accordance with said board's explanatory legend, pursuant to which purchasers received, for fiye cents paid, and dependent upon number punched by chance or purchase of last punch on board, one of aforesaid boxes of candy, or nothing other than privilege of making a punch; so assembled aml packed that such asl'ortments might be nnd were used by retail dealers for distribution thereof to purchasing public by lot or chance, without alteration or rearrangement, and with knowledge and intent that such assortments would and could thus be resold to public hy lot or chance by such retail dealers, in competition with many who do not make and sell "dra,w" or "deal" assortments, but sell their W "straight" goods In interstate commerce In competition with the other; lth result that competitors who refused to and do not sell candy so packed nnc:I assembled that it can be resold to public by lot or chance were put to a disadvantage in competing with it and with others employing similat· rnethous to those described, trade was diverted to It and others using slrniior methods by reason of customers' attraction to such "draw" or "dl'al'' assortments from those who do not use such methods, trade was diverted to it ft·om its said competitors, and there was a restraint upon ?11<1 a detriment to the freedom of fair and legitimate competition in Industry concerned; to the prejudice and injury of the publk nnd <'Ompetltors:

Complaint 25F.T.O.

II eld, That such acts and practices were to the prejudice of the public and competitors and constituted unfair methods of competition. Before llfro. Charles P. Vic·ini and Mr. llenry },/, lVhite, tri!tl exammers.

llfr. P. 0. J(oli-lt.Yki and lllr. ll enrry 0. La·nlc for the Commission. Roberts & Skeel and Flood, Lenihan & Ivers, of Seattle, Wash., for respondent.

CollrPL.UNT Pursuant to the provisions of an Act of Congress, approved Sep· tember 26, 1914, entitled "An Act to create a Federal Trade Cmumis· sion, to define its powers and duties, and for other purposes," t~ 1e Federal Trade Commission, having reason to believe that Impenal Candy Co., a corporation, hereinafter referred to as respondent, has been and is using unfair methods of competition in commerce, as "commerce" is defined in said act of Congress, and it appearing to said Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Respondent, Imperial Candy Co., is a corporation organized and operating under the laws of the State of "\Vashington, with its principal office and place of business located at 800 "\Vester» A venue, Seattle, "\Vash. Respondent is now, and for several yeare last past has been, engaged in the manufacture of candies and in tl~e sale and distribution thereof to wholesale dealers, jobbers, and retatl dealers located at points in the various States of the United States, and causes and has caused its said products, when so sold, to be transported from its principal place. of business in the city of Seattle, ·wash., to purchasers thereof in other States of the United States n.t their respective places of business; and there is now, and has been for several years last past, a course of trade and commerce by said respondent in such candy between and among the States of the United States. In the course and conduct of said business, respond· ent is in competition with other corporations and with partnerships and individuals engaged in the manufacture of candy and in the sale and distribution thereof in commerce between and among the various States of the United States.

PAn. 2. In the course and conduct of its business, as described in paragraph 1 hereof, respondent sells and has sold to wholesale and retail dealers packages or assortments of candy so packed and ~s· sembled as to involve the use of a lottery scheme when sold and d1s· tributed to the consumer thereof.

DlPERIAL CA:XDY CO. 483 481 Complalut (a) One of said. assortments, manufactured and distributed by the respondent, is composed of a number of large items of candy and a number of boxes of candy of varying sizes, together with a. device commonly called a "punchboard." The said boxes of candy ~redistributed to the consuming public by means of said punchboard 111 the following manner: The sales by means of said punchboard are 5¢ each, and when a punch is made from said punchboard a number is disclosed. The numbers begin with 1 and continue to the number of punches there are on the board, but the numbers are not arranged in numerical sequence. The board bears a statement 01' statements informing the prospective customer as to which numbers receive a large item of candy and which numbers receive a box ?f candy and the size thereof. The purchaser of the last six punches In each sections pays for only one punch, the last five punches being ~ree, and the purchaser of the last punch on the board wins a large Item of candy irrespective of the number on the punch. A pur- ~haser who does not qualify by obtaining one of the numbers call- ~ng for one of the boxes of candy or one of the large items of candy Y punching the last number on the board receives nothing for his *oney other than the privilege of punching a number from the board. hhe large items of candy and the boxes of candy are worth more ~ an 5¢ each, and a purchaser who obtains one of the numbers call- Ing for a box of candy receives the same for the price of 5¢. The numbers on said board are effectively concealed from the purchasers Or Prospective purchasers until a punch or selection has been made and the particular punch separated from the board. The boxes of candy and large items of candy in said assortment are thus distrib- Uted to purchasers of punches from said board wholly by lot or chance .

. The respond.ent manufactures and distributes several assortments ~Volving the same lot or chance feature, but varying only in detail. h 0111e of the board.s have one thousand numbers, others have fifteen Undred numbers, some of the boards are J.ivided into two sections, anJ. some are divided into six sections.

b (b) Another of said assortments manufactured and distributed / ~he respondent is composed of a box of candy, together with a d~VIce commonly called a "push card." The said box of candy is n:stributed to the consuming public by means of said push card in h e following manner: Sltid push card contains fifteen discs numered from one to fifteen, but not arranged in numerical sequence, a~d with the numbers concealed. The purchaser of a punch from ~Uld push card pays the amount i~ cents represented by the numer which the displaced disc exposes; the push card bears a legend Complaint 25F. T.C.

stating that the lucky number under seal wins the box of candy. A purchaser who does not qualify by obtaining the lucky number re~ ceives nothing for his money other than the privilege of punching a number from said push card. The box of candy is worth more than the highest priced punch on said push card, fifteen cents, and a pnr~ chaser who obtains the number calling for the box of candy receives the same wholly by lot or chance.

PAR. 3. The wholesale dealers and jobbers, to whom respondent sells its assortments, resell said assortments to retail dealers, and said retail dealers, and the retail dealers to whom respondent sells direct, expose said assortments for sale and sell said candy to the purchas~ ing public in accordance with the aforesaid sales plans. Respondent thus supplies to and places in the hands of others the means of conducting lotteries in the sale of its product in accordance with the sales plans hereinabove set forth, and said sales plans have the capacity and tendency of inducing purchasers thereof to purchase respondent's said product in preference to candy offered for sale and sold by its competitors.

PAR. 4. The sale of said candy to the purchasing public in the man~ ner above alleged involves a game of chance or the sale of a chance to procure a box of candy, or items of candy. The use by respondent of said method in the sale of candy, and the sale of candy by and through the use thereof and by the aid of said method, is a practice of the sort which the common law and criminal statutes have long deemed contrary to public policy; and is contrary to an established public policy of the Government of the United States. The use by respondent of said method has the dangerous tendency unduly to hinder competition or create monopoly in this, to wit: that the use thereof has the tendency and capacity to exclude from the branch of the candy trade involved in this proceeding competitors who do not adopt and use the same method or an equivalent or similar method involving the same or an equivalent or similar element of chance or lottery scheme.

Many persons, firms, and corporations who make and sell candy in competition with the respondent, as above alleged, are unwilling to offer for sale or sell candy so packed and assembled as above allege?' or otherwise arranged and packed for sale to the purchasing pubhc so as to involve a game of chance, and such competitors refrain therefrom.

PAR. 5. :Many dealers in and ultimate purchasers of candy a;e attracted by respondent's said method and manner of packing sa~d candy, and by the element of chance involved in the sale thereof Jll the manner above described, and are thereby induced to purchase said J:\IPEr.IAL CANDY CO. 485 481 Flnrllng~ candy so packed and sold by respondent, in preference to candy offered for sale and sold by said competitors of respondent who do not Use the same or equivalent methods. The use of said method by respondent has the tendency and capacity, because of said game of chance, to divert to respondent trade and custom from its said competitors who do not use the same or an equivalent method; to exclude from said candy trade all competitors who are unwilling to and who do not use the same or an equivalent method because the same is unlawful; to lessen competition in said candy trade, and to tend to create a Jnonopoly of said candy tmde in respondent and such other distributors of candy as use the same or an equivalent method, and to deprive the purchasing public of the benefit of free competition in said candy h·acte. The use of said method by the respondent has the tendency and capacity to eliminate from said candy trade all actual competitors, and to exclude therefrom all potential competitors, who do not adopt and use said method or an equivalent method. Pan. 6. Many of said competitors of respondent are unwilling to nuopt and use said method or any method involving a game of chance ~: th? sale of a chance to win something by chance or any other method at 1s contrary to public policy.

pan. 7. The aforementioned method, acts and practices of the l·~spondent are all to the prejudice of the public and of respondent's colllpetitors, as hereinabove alleged. Said method, acts, and practices ?onstitute unfair methods of competition in commerce within the Ttent and meaning of Section 5 of an Act of Congress, entitled "An •l ct to create a Federal Trade Commission, to define its powers and < Utj f.'S, and for other purposes," approved September 26, 1914. HEPORT, FINDINGS As TO THE FACTS, AND OnnER t . Pursuant to the provisions of an Act of Congress, approved Sep- ~~ber 26, 1914, entitled "An .Act to create a Federal Trade Comt] lssion, to ut'fine its powers and unties, and for other purposes," le Federal Trade Commission, on June '4, 1936, issued and on June9 1' 193~, served its complaint in this proceeding upon the respoudt'nt, 0~Penal Candy Company, a corporation, charging it with the use D unfair methods of competition in commerce in violation of the 11~:ovisions of said act. After the issuance of said complaint and the in lng of respondent's answer thereto, testimony and other evidence p ~~P~o~t of the allegations of said complaint were introduced by nli · I~ohnski, attorney for the Commission, and in opposition to the th egations of the complaint by Emmett G. Lenihan, attorney for e respondent, before Charles P. Vicini and Henry 1\f. 'Vhite, exami- 486 FEDERAL TRADE COl\IMISSION DECISIONS Flndin;:rs 25F.T. C. ners of the Commission theretofore duly designated by it, and said testimony and other evidence were duly recorded and filed in the office of the Commission. Thereafter, this proceeding regularly came on for final hearing before the Commission on said complaintt the answer thereto, testimony and other evidence, briefs in support of the complaint and in opposition thereto, and the oral arguments of Henry C. Lank, counsel for the Commission, and Emmett G. Lenihan, counsel for the respondent; and the Commission, having duly considered the matter and being now fully advised in the prernises, finds that this proceeding is in the interest of the public and makes this its findings as to the facts and its conclusion draw11 therefrom:

FINDINGS AS TO Tile FACTS PARAGRAPH 1. The respondent, Imperial Candy Company, is a corporation organized under the laws of the State of 'Vashingtou, with its principal office and place of business located in the city of Seattle, State of ·washington. Respondent is now, and for several years Jast past has been, engaged in the manufacture of candy in the city of Seattle and in the sale and distribution thereof to retail and wholesale dealers and jobbers located in the State of Washington and in the States of Oregon, Montana, Idaho, California, Arizona, New 1\fexico, Utah, 'Vyoming, and in the Territories of Alaska and the Hawaiian Islands. It causes the said candy when sold to be shipped or transported from its principal place of business in the State of 1Vashington to purchasers thereof in 1Vashington and in the other States and Territories of the United States, as mentioned above. Tn so carrying on said busille.'lR, l'('spo11dent is and has beell engaged in interstate commerce and is and has been engaged in active competition with other>r corporations and with partnerships and. individuals engaged in the manufacture of candy and in the sale and distribution thereof in commerce between and among the various States and Territories of the United States, as mentioned nhove. ' PAR. 2. In the course and conduct of its business, as clescribell in paragraph 1 hereof, respondent sells and has sold to wholesale and retail dealers, as above described, certain assortments of candy so packed and assembled as to involve, or which are designed to involve, the use of a lottery scheme when sold and distrilm1Pd to the consumers thereof.

Onp of said assortments is composc1l of a number of boxes of assorted chocobte candies, together with a device commonly called a "pnnchboard." The boxes of candy contained. in said as:"ortnwnt Ji\ll'ETIIAL CANDY CO. 487 481 Flnc1lngs ~redistributed to the consuming public by means of ~aid pnnehboard In the following manner: The sales by means of said punch board are 5~ each, and when a punch is made from said board a number is dJselo~ed. The numbers begin with 1 and continue to the nmHber ?f punches there are on the board, but the numbers are not arranged ~n numerical sequence. The board bears a statement or statements Jnfor111h1g the prospective customer as to which numbers receive a h~x: of candy. The purchaser of the last punch on the board l'C- Ceives a specified box of candy. A purchaser who does not qualify by obtaining one of the numbers calling for one of the boxes of C!tJtdy, or by punching the last number on the board(l, receives nothing for his mo11ey other than the privilege of ptmchi11g a number from the board. The boxes of candy are ·worth more than 5¢ each, and a purchaser who obtains one of the numbers ca Using for a box of ~andy receives the same for the price of 5t. The numbers on said oard nre effectively concealed from the purchasers or prospective ~lll'chasers until a punch or selection has been made and the partJ~ular punch separated from t.he board. The boxes of candy in :a~d assortment are thus distributed to purchasers of punches from IHd board wholly by lot or chance, and the fact ns to whether a Purchaser receives one of the boxes of candy or nothing other than ~he privilege of punching a number from said board for his money 18 thus determined wholly by lot or chance. PAn. 3. The candy assortments involving the lot or chance feature, ~s above described, are genemlly referred to in the candy trade or 1~dustry as "draw" or ''deal" ~ssortments. Assortments of candy Without lot or chance featmes in connection with their resale to the ~Ublie are generally referred to in the candy trade or industry as . stl·aight" goods. These terms will be used hereafter in these find- Ings to distinguish these separate types of assortments . . pan. 4. The wholesale dealers or jobbers to whom respondent sells Its assortments resell the same to retail dealers, and .,aid retail dealers and the retail dealers to whom respondent sells direct expose sni<l :lssortments for sale and sell said candy to the purchasing public 111 accordance with the sales plan as described above. PAn. 5. All sales made by respondent, whether to wholesale deal<'rs and jobbers or to retail dealers, are absolute sales and respondentl'et ·th !tons no control over said assortments after they are delivered(l to e Wholesale <h•aler or jobber or retail dealer. The nssortments arf\ ns~'f'll1bled and packed in such manner that they are designed to be lJlsed and are used by the retail dealer for distribution to the pure tn>;iji t I . · g pu t, a teratwn or rearrangemen . 11'l 1c b y lot. or c1wnre wlt.cUont. 488 FEDERAL TRADE CO:i\-IMISSION DECISIONS Findings 25F.T.C- In the sale and distribution to jobbers and wholesale uealers for resale to retail dealers and to retail dealers direct the assortments of candy described in paragraph 2 hereof, respondent has knowled~e that said candy will be resold to the purchasing public by retail dealers by lot or chance, and it packs such candy in the way and manner described so that without alteration, addition or rearrange· ment thereof it may be resold to the public by lot or chance by said retail dealers.

PAR. 6. There are in the United States many manufacturers of candy competing with respondent in the territory served by respondent who do not manufacture and sell "draw'' or "deal" assort· ments· of candy and who sell their "straight" goods in interstate commerce in competition with the "draw" or "deal" assortments. The sale or distribution of candy by retail dealers by lot or chance has the capacity and tendency to and does decrease the sale of candy sold without any sales plan or device involving a lottery or game of .

Several witnesses testified, and the Commission finds, that ens· tomers coming into retail establishments and desiring candy similai' to that distributed by respondent would take chances or make pur· chases by means of said push cards or punchboards, and that ~D such cases when unsuccessful in obtaining candy by tnea.ns of s::utl push card or punchboard some of such customers would then pur· chase candy as a "straight" purchase and without the use of the lottery device; that the gambling feature connected with the Stc of respondent's assortment, as described above, was attractive to customers; and that before making "straight" purchases it was not unusual for customers to endeavor to procure the means of such lottery devices rather than to make candv.a desired"straightbY" purchase.

PAR. 7. The sale and distribution of "draw'' or "deal" assortments of candy, or of candy which has connected with its sale to the pub· lie the means or opportunity of obtaining a box of candy as a prize or becoming a winner by lot or chance, teaches and encourages gambling and is in violation of various municipal ordinances and regulations and various State statutes and constitutions. The sale and distribu· tion of candy by retailers by the methods described herein is the sale and distribution of candy by lot or chance and constitutes a lotte;Y or gaming device, and the Commission finds that the sale and dts· tribution of assortments of candy as described herein provides re· tail merchants with a means of violating the laws of the several states. Competitors who refuse to or who do not sell candy so packed 11\IPERIAL CANDY CO. 489 481 Order and assembled that it can be resold to the public by lot or chance are put to a disadvantage in competing with respondent and with others employing similar methods to those described herein. Be· cause the "draw" or "deal" assortments are attractive to customers P~rchasing from retail dealers, the Commission finds that trade is diverted to respondent and others using similar methods from com- Petitors who do not use such methods. The use of such methods by ~·e~pondent in the sale and distribution of its candy is prejudicial and lnJurious to the public and to respondent's competitors, and has resulted in the diversion of trade to respondent from its said compe~itors, and is a restraint upon and a detriment to the freedom of fair and legitimate competition in the candy industry. PAn. 8. An officer of the respondent corporation testified, and the Commission finds, that respondent's total annual volume of sales is approximately $750,000, of which approximately 60 percent represents sales to customers outside of the State of Washington. Between 10 percent and 15 percent of respondent's total sales consists of assortments of candy with which a punchboard is furnished . . PAn. 9. The Commission further finds that the sale and distribution in interstate commerce of assortments of candy so packed and as- Selnbled as to enable retail dealers, without alteration, addition or renrrangement, to resell the same to the consuming public by lot or ehance, is contrary to public policy.

CONCLUSION The aforesaid acts and practices of respondent, Imperial Candy ~company, a corporation, under the conditions and circumstances set fotth in the foreO'oin(J' findings of fact, are all to the prejudice of the Public and respo~dent's competitors, and constitute unfair methods of ~ompetition in commerce within the intent and meaning of Section of an Act of Congress, approved September 26, 1914, entitled "An ~et to create a Federal Trade Commission, to define its powers and 4Ut'.Jes, and for other purposes."

ORDER TO CEASE AND DESIST .This proceeding having been heard by the Federal Trade Comlnission upon the complaint of the commission, the answer of re· zy.o~l~ent, testimony aml other evidence taken before Charles 11 • f lCini and Henry 1\I. White, Examiners of the Commission thereto~ p~r~ duly designated by it, in support of the allegations of said com- 111 alnt and in opposition thereto, briefs filed herein, and oral argu· ents of Henry C. Lank, counsel for the Commission, and Emmett 490 FEDERAL ~:I.'TRADE CO:\IMISSION DECISIONS Order 25F. T.C.

G. Lenihan, counsel for the respondent; and the Commission having made its findings as to the facts and its conclusion that said re· ,':lpondent has violated the provisions of an Act of Congress, ap· -proved September 26, 1914, entitled "An A_ct to create a Federal Tmde Commission, to define its powers and duties, and other pnr· poses."

It is ordel·ed, That the respondent, Imperial Candy Company, a ·corporation, its officers, representatives, agents, and employees, i.t -connection with the offering :for sale, sale, and distribution in inter· state commerce of candy, do forthwith cease and desist from: 1. Selling and distributing to jobbers and wholesale dealers :for resale to retail dealers, or to I'etail dealers direct, candy so packed and assembled that sales of such candy to the general public are to be made, or may be made, by means of a lottery, gaming device, or ,gift enterprise.

2. Supplying to or placing in the hands of wholesale dealers and jobbers or retail dealers assortments of candy which are used, or which may be used, without alteration or rearrangement of" the con· tents of such assortments, to conduct a lottery, gaming device, or gift enterprise in the sttle or distribution of the candy contained in said assortments to the public.

3. Packing or assembling in the same assortment of candy for sale to the public at retail boxes of candy, together with a device cotn· monly called a "punchboard,'' which punchboard is for use, or which may be or is designed to be used, in distributing or selling said (·andy to the public at retail.

4. Furnishing to retail and wholesale dealers and jobbers a device commonly called a "punchboard," either with assortments of candy or separately, bearing a legend or legends or statements informing the purchasing public that the candy is Leing sold to the public bY lot or chance or in accordance with a sales plan which constitutes a lottery, gaming device, or gift enterprise. It is further ordeJ'ed, That respondent, Imperial Candy Company, a corporation, shall, within 30 days after service upon it of this orde:·, file with the Commission a report in writing setting forth in detatl the manner and form in which it has complied with the order to (·ease and desist hereinabove set forth.

YORK BAR BELL CO., ETO. 491 Syllabus